UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
FORM
For
the quarterly period ended
OR
For the transition period from ________ to ________
(Exact Name of Registrant as Specified in its Charter)
State or other jurisdiction of incorporation or organization |
(Commission File No.) | (I.R.S. Identification No.) |
(Address of principal executive offices) (Zip Code)
Registrant’s
telephone number including area code:
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| The
| ||||
| The
|
Securities registered pursuant to Section 12(g) of the Act: None
Indicate
by check mark whether the issuer (1) filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of
1934 during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days.
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to rule
405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer ☐ | |
| Non-accelerated filer ☐ | Smaller
reporting company |
| Emerging
growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No
As of August 5, 2024, there were shares outstanding of the registrant’s common stock.
DOCUMENTS INCORPORATED BY REFERENCE
None.
TABLE OF CONTENTS
| 2 |
PART I
ITEM 1. FINANCIAL STATEMENTS
AMMO, Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS
| June 30, 2024 | March 31, 2024 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| Current Assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable, net | ||||||||
| Due from related parties | ||||||||
| Inventories | ||||||||
| Prepaid expenses | ||||||||
| Total Current Assets | ||||||||
| Equipment, net | ||||||||
| Other Assets: | ||||||||
| Deposits | ||||||||
| Patents, net | ||||||||
| Other intangible assets, net | ||||||||
| Goodwill | ||||||||
| Right of use assets - operating leases | ||||||||
| Deferred income tax asset | ||||||||
| TOTAL ASSETS | $ | $ | ||||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
| Current Liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued liabilities | ||||||||
| Current portion of operating lease liability | ||||||||
| Current portion of construction note payable | ||||||||
| Insurance premium note payable | ||||||||
| Total Current Liabilities | ||||||||
| Long-term Liabilities: | ||||||||
| Contingent consideration payable | ||||||||
| Construction note payable, net of unamortized issuance costs | ||||||||
| Operating lease liability, net of current portion | ||||||||
| Total Liabilities | ||||||||
| Shareholders’ Equity: | ||||||||
| Series A cumulative perpetual preferred Stock | ||||||||
| Common stock, $ par value, shares authorized and shares issued and and outstanding at June 30, 2024 and March 31, 2024, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Treasury Stock | ( | ) | ( | ) | ||||
| Total Shareholders’ Equity | ||||||||
| TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | $ | $ | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
| 3 |
AMMO, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For the Three Months Ended June 30, | ||||||||
| 2024 | 2023 | |||||||
| Net Revenues | ||||||||
| Ammunition sales(1) | $ | $ | ||||||
| Marketplace revenue | ||||||||
| Casing sales | ||||||||
| Cost of Revenues | ||||||||
| Gross Profit | ||||||||
| Operating Expenses | ||||||||
| Selling and marketing | ||||||||
| Corporate general and administrative | ||||||||
| Employee salaries and related expenses | ||||||||
| Depreciation and amortization expense | ||||||||
| Total operating expenses | ||||||||
| Loss from Operations | ( | ) | ( | ) | ||||
| Other Income | ||||||||
| Other income | ||||||||
| Interest expense | ( | ) | ( | ) | ||||
| Total other income | ||||||||
| Loss before Income Taxes | ( | ) | ( | ) | ||||
| Benefit for Income Taxes | ( | ) | ( | ) | ||||
| Net Loss | ( | ) | ( | ) | ||||
| Preferred Stock Dividend | ( | ) | ( | ) | ||||
| Net Loss Attributable to Common Stock Shareholders | $ | ( | ) | $ | ( | ) | ||
| Net Loss per share | ||||||||
| Basic | $ | ( | ) | $ | ( | ) | ||
| Diluted | $ | ( | ) | $ | ( | ) | ||
| Weighted average number of shares outstanding | ||||||||
| Basic | ||||||||
| Diluted | ||||||||
| (1) |
The accompanying notes are an integral part of these condensed consolidated financial statements.
| 4 |
AMMO, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(Unaudited)
| Preferred Stock | Common Shares | Additional Paid-In | Accumulated | Treasury | ||||||||||||||||||||||||||||
| Number | Par Value | Number | Par Value |
Capital |
(Deficit) |
Stock | Total | |||||||||||||||||||||||||
| Balance as of March 31, 2024 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||||||
| Employee stock awards | - | |||||||||||||||||||||||||||||||
| Stock grants | - | - | ||||||||||||||||||||||||||||||
| Common stock purchase options | - | - | ||||||||||||||||||||||||||||||
| Repurchase of common shares (1) | - | ( | ) | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||
| Preferred stock dividends | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Dividends accumulated on preferred stock | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Treasury shares purchased | - | ( | ) | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||
| Balance as of June 30, 2024 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||||||
| Preferred Stock | Common Shares | Additional Paid-In | Accumulated | Treasury | ||||||||||||||||||||||||||||
| Number | Par Value | Number | Par Value |
Capital |
(Deficit) |
Stock | Total | |||||||||||||||||||||||||
| Balance as of March 31, 2023 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||||||
| Employee stock awards | - | |||||||||||||||||||||||||||||||
| Stock grants | - | - | ||||||||||||||||||||||||||||||
| Dividends accumulated on preferred stock | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Preferred stock dividends | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Treasury shares purchased | - | ( | ) | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||
| Balance as of June 30, 2023 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||||||
| (1) |
The accompanying notes are an integral part of these condensed consolidated financial statements.
| 5 |
AMMO, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
(Unaudited)
| For
the Three Months Ended June 30, | ||||||||
| 2024 | 2023 | |||||||
| Cash flows from operating activities: | ||||||||
| Net Loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile Net Loss to Net Cash provided by/(used in) operations: | ||||||||
| Depreciation and amortization | ||||||||
| Debt discount amortization | ||||||||
| Employee stock awards | ||||||||
| Stock grants | ||||||||
| Common stock purchase options | ||||||||
| Contingent consideration payable fair value | ( | ) | ( | ) | ||||
| Allowance for doubtful accounts | ||||||||
| Reduction in right of use asset | ||||||||
| Deferred income taxes | ( | ) | ( | ) | ||||
| Changes in Current Assets and Liabilities | ||||||||
| Accounts receivable | ||||||||
| Due from related parties | ( | ) | ||||||
| Inventories | ( | ) | ( | ) | ||||
| Prepaid expenses | ||||||||
| Deposits | ( | ) | ||||||
| Accounts payable | ( | ) | ( | ) | ||||
| Accrued liabilities | ||||||||
| Operating lease liability | ( | ) | ( | ) | ||||
| Net cash provided by/(used in) operating activities | ( | ) | ||||||
| Cash flows from investing activities: | ||||||||
| Purchase of equipment | ( | ) | ( | ) | ||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Cash flow from financing activities: | ||||||||
| Payments on insurance premium note payment | ( | ) | ( | ) | ||||
| Payments on construction note payable | ( | ) | ( | ) | ||||
| Proceeds from factoring liability | ||||||||
| Payments on factoring liability | ( | ) | ||||||
| Payments on note payable - related party | ( | ) | ||||||
| Preferred stock dividends paid | ( | ) | ( | ) | ||||
| Repurchase of common shares | ( | ) | ||||||
| Common stock repurchase plan | ( | ) | ( | ) | ||||
| Net cash used in financing activities | ( | ) | ( | ) | ||||
| Net increase/(decrease) in cash | ( | ) | ||||||
| Cash, beginning of period | ||||||||
| Cash, end of period | $ | $ | ||||||
(Continued)
| 6 |
AMMO, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
(Unaudited)
For the Three Months Ended June 30, | ||||||||
| 2024 | 2023 | |||||||
| Supplemental cash flow disclosures: | ||||||||
| Cash paid during the period for: | ||||||||
| Interest | $ | $ | ||||||
| Income taxes | $ | $ | ||||||
| Non-cash investing and financing activities: | ||||||||
| Insurance premium note payment | $ | $ | ||||||
| Dividends accumulated on preferred stock | $ | $ | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
| 7 |
AMMO, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2024
(Unaudited)
NOTE 1 – ORGANIZATION AND BUSINESS ACTIVITY
We were formed under the name Retrospettiva, Inc. in November 1990 to manufacture and import textile products, including both finished garments and fabrics. We were inactive until the following series of events in December 2016 and March 2017.
On December 15, 2016, the Company’s majority shareholders sold their common stock to Mr. Fred W. Wagenhals (“Mr. Wagenhals”) resulting in a change in control of the Company. Mr. Wagenhals was appointed as sole officer and the sole member of the Company’s Board of Directors.
The
Company also approved (i) doing business in the name AMMO, Inc., (ii) a change to the Company’s OTC trading symbol to POWW, (iii)
an agreement and plan of merger to re-domicile and change the Company’s state of incorporation from California to Delaware, and
(iv) a
On March 17, 2017, the Company entered into a definitive agreement with AMMO, Inc. a Delaware Corporation (“PRIVCO”) under which the Company acquired all of the outstanding shares of common stock of PRIVCO. PRIVCO subsequently changes its name to AMMO Munitions, Inc.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Accounting Basis
The accompanying unaudited condensed consolidated financial statements and related disclosures included in this Quarterly Report on Form 10-Q have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and reflect all adjustments, which consist solely of normal recurring adjustments, needed to fairly present the financial results for these periods. Additionally, these condensed consolidated financial statements and related disclosures are presented pursuant to the rules and regulations of the Securities Exchange Commission (“SEC”).
The accompanying condensed consolidated financial statements should be read in conjunction with the audited condensed consolidated financial statements and related disclosures contained in the Company’s Annual Report filed with the SEC on Form 10-K for the year ended March 31, 2024. The results for the three months ended June 30, 2024, are not necessarily indicative of the results that may be expected for the entire fiscal year. Accordingly, certain information and note disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been omitted pursuant to the rules and regulations of the SEC. In the opinion of management, all adjustments have been made, which consist only of normal recurring adjustments necessary for a fair statement of (a) the results of operations for the three month periods ended June 30, 2024 and 2023, (b) the financial position at June 30, 2024, and (c) cash flows for the three month periods ended June 30, 2024 and 2023.
| 8 |
AMMO, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
We use the accrual basis of accounting and U.S. GAAP, and all amounts are expressed in U.S. dollars. The Company has a fiscal year-end of March 31st.
Unless the context otherwise requires, all references to “Ammo”, “we”, “us”, “our,” or the “Company” are to AMMO, Inc., a Delaware corporation, and its consolidated subsidiaries.
Principles of Consolidation
The condensed consolidated financial statements include the accounts of AMMO, Inc. and its wholly owned subsidiaries. All significant intercompany accounts and transactions are eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions that affect the amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the balance sheet and reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates made in preparing the condensed consolidated financial statements include the valuation of allowances for credit losses, valuation of deferred tax assets, inventories, useful lives of assets, goodwill, intangible assets, stock-based compensation, and warrant-based compensation.
Critical Accounting Estimates and Policies
A summary of our critical accounting policies is included in our Annual Report on Form 10-K for the year ended March 31, 2024, under “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” There have been no significant changes to these policies during the three months ended June 30, 2024. For disclosure regarding recent accounting pronouncements and the anticipated impact they will have on our operations, please refer to Note 2 to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended March 31, 2024.
Goodwill
We
evaluate goodwill for impairment annually or more frequently when an event occurs, or circumstances change that would more likely
than not reduce the fair value of the reporting unit below its carrying amount. In testing for goodwill impairment, we may elect to
utilize a qualitative assessment to evaluate whether it is more likely than not that the fair value of a reporting unit is less than
its carrying amount. If our qualitative assessment indicates that goodwill impairment is more likely than not, we perform a two-step
impairment test. We test goodwill for impairment under the two-step impairment test by first comparing the book value of net assets
to the fair value of the reporting unit. If the fair value is determined to be less than the book value or qualitative factors
indicate that it is more likely than not that goodwill is impaired, a second step is performed to compute the amount of impairment
as the difference between the estimated fair value of goodwill and the carrying value. We estimate the fair value of the reporting
units using discounted cash flows. Forecasts of future cash flows are based on our best estimate of future net sales and operating
expenses, based primarily on expected category expansion, pricing, market segment share, and general economic conditions. Due to the
declines in the value of our stock price and market capitalization in the year ended March 31, 2023, we assessed qualitative factors to determine if it is more
likely than not that the fair value of the Marketplace segment is less than its carrying amount. Through our analysis we determined
our stock price and market capitalization decline is not indicative of a decrease in the fair value of our Marketplace segment and a
fair value calculation using the discounted cash flows was more appropriate due to the operational performance of the reporting
segment. Accordingly, the impairment of Goodwill was not warranted for the year ended March 31, 2024. As of June 30, 2024, the
Company has a goodwill carrying value of $
| 9 |
AMMO, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Accounts Receivable and Allowance for Credit Losses
Our
accounts receivable represents amounts due from customers for products sold and include an allowance for estimated credit losses which
is estimated based on the collectability and age of the accounts receivable balances and categorization of customers with similar financial
condition. At June 30, 2024 and March 31, 2024, we reserved $
Cash and Cash Equivalents
For purposes of the condensed consolidated statements of cash flows, we consider highly liquid financial instruments purchased with a maturity of three months or less to be cash equivalents.
License Agreements
We are a party to a license agreement with Jesse James, a well-known motorcycle designer, and Jesse James Firearms, LLC, a Texas limited liability company. The license agreement grants us the exclusive worldwide rights through April 12, 2026 to Mr. James’ image rights and trademarks associated with him in connection with the marketing, promotion, advertising, sale, and commercial exploitation of Jesse James Branded Products. We agreed to pay Mr. James royalty fees on the sale of ammunition and non-ammunition Branded Products and to reimburse him for any out-of-pocket expenses and reasonable travel expenses.
Patents
On September 28, 2017, AMMO Technologies Inc. (“ATI”), an Arizona corporation, which is 100% owned by us, merged with Hallam, Inc, a Texas corporation, with ATI being the survivor. The primary asset of Hallam, Inc. was an exclusive license to produce projectiles and ammunition using the Hybrid Luminescence Ammunition Technology under patent U.S. 8,402,896 B1 with a publication date of March 26, 2013, owned by University of Louisiana at Lafayette. The license was formally amended and assigned to AMMO Technologies Inc. pursuant to an Assignment and First Amendment to Exclusive License Assumption Agreement dated to be effective as of August 22, 2017, the Merger closing date. This asset will be amortized from September 2017, the first full month of the acquired rights, through October 29, 2028.
Under
the terms of the Exclusive License Agreement, the Company is obligated to pay a quarterly royalty to the patent holder, based on a $
per unit basis for each round of ammunition sold that incorporates this patented technology through October 29, 2028. For the three months
ended June 30, 2024 and 2023, the Company recognized royalty expenses of $
| 10 |
AMMO, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In August 2018, we applied for additional patent coverage for the manufacturing methods or application of the Hybrid Luminescence Ammunition Technology on a variety of projectile and ammunition types. The costs of filing this patent were expensed.
On October 5, 2018, we completed the acquisition of SW Kenetics Inc. AMMO Technologies, Inc. succeeded all of the assets of SW Kenetics, Inc. and assumed all of the liabilities.
The primary asset of SW Kenetics Inc. was a pending patent for modular projectiles. All rights to patent pending application were assigned and transferred to AMMO Technologies, Inc. pursuant to Intellectual Property Rights Agreement on September 27, 2018.
We intend to continue building our patent portfolio to protect our proprietary technologies and processes and will file new applications where appropriate to preserve our rights to manufacture and sell our branded lines of ammunition.
Other Intangible Assets
On March 15, 2019, Enlight Group II, LLC d/b/a Jagemann Munition Components, a wholly owned subsidiary of AMMO, Inc., completed its acquisition of assets of Jagemann Stamping Company’s ammunition casing manufacturing and sales operations pursuant to the terms of the Amended and Restated Asset Purchase Agreement (See Note 12). The intangible assets acquired include a tradename, customer relationships, and intellectual property.
On April 30, 2021, we entered into an agreement and plan of merger (the “Merger Agreement”), by and among the Company, SpeedLight Group I, LLC, a Delaware limited liability company and a wholly owned subsidiary of the Company and Gemini Direct Investments, LLC, a Nevada limited liability company. Whereby SpeedLight Group I, LLC merged with and into Gemini Direct Investments, LLC, with SpeedLight Group I, LLC surviving the merger as a wholly owned subsidiary of the Company. At the time of the Merger, Gemini Direct Investments, LLC had nine (9) subsidiaries, all of which are related to Gemini’s ownership of GunBroker, an online auction marketplace dedicated to firearms, hunting, shooting, and related products. The intangible assets acquired include a tradename, customer relationships, intellectual property, software, and domain names.
Impairment of Long-Lived Assets
We
continually monitor events and changes in circumstances that could indicate carrying amounts of long-lived assets may not be recoverable.
When such events or changes in circumstances are present, we assess the recoverability of long-lived assets by determining whether the
carrying value of such assets will be recovered through undiscounted expected future cash flows. If the total of the future cash flows
is less than the carrying amount of those assets, we recognize an impairment loss based on the excess of the carrying amount over the
fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or the fair value less costs to sell.
Revenue Recognition
We generate revenue from the production and sale of ammunition, ammunition casings, and marketplace fee revenue, which includes auction revenue, payment processing revenue, and shipping income. We recognize revenue according to Accounting Standard Codification – Revenue from Contract with Customers (“ASC 606”). When the customer obtains control over the promised goods or services, we record revenue in the amount of consideration that we can expect to receive in exchange for those goods and services. We apply the following five-step model to determine revenue recognition:
| ● | Identification of a contract with a customer | |
| ● | Identification of the performance obligations in the contact | |
| ● | Determination of the transaction price | |
| ● | Allocation of the transaction price to the separate performance allocation | |
| ● | Recognition of revenue when performance obligations are satisfied |
| 11 |
AMMO, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
We only apply the five-step model when it is probable that we will collect the consideration we are entitled to in exchange for the goods or services it transfers to the customer. At contract inception and once the contract is determined to be within the scope of ASC 606, we assess the goods or services promised within each contract and determine those that are performance obligations, and assess whether each promised good or service is distinct.
For Ammunition Sales and Casing Sales, our contracts contain a single performance obligation and the entire transaction price is allocated to the single performance obligation. We recognize as revenues the amount of the transaction price that is allocated to the respective performance obligation when the performance obligation is satisfied or as it is satisfied. Accordingly, we recognize revenues (net) when the customer obtains control of our product, which typically occurs upon shipment of the product or the performance of the service. In the year ended March 31, 2021, we began accepting contract liabilities or deferred revenue. We included Deferred Revenue in our Accrued Liabilities. We will recognize revenue when the performance obligation is met.
For Marketplace revenue, the performance obligation is satisfied, and revenue is recognized as follows:
Auction revenue consists of optional listing fees with variable pricing components based on customer options selected from the GunBroker website and final value fees based on a percentage of the final selling price of the listed item. The performance obligation is to process the transactions as initiated by the customer. Revenue is recognized at a point in time when the transaction is processed.
Compliance fee revenue consists of fees charged to customers based on a percentage of the final price of an item at the time of purchase. The performance obligation is to process the transactions as initiated by the customer. Revenue is recognized at a point in time when the transaction is processed.
Payment processing revenue consists of fees charged to customers on a transactional basis. The performance obligation is to process the transactions as initiated by the customer. The price is set by the GunBroker user agreement on the website based on stand-alone selling prices. Revenue is recognized at a point in time when the transaction is processed.
Shipping income consists of fees charged to customers for shipping of sold items listed on the GunBroker website. The performance obligation is to ship the item sold as initiated by the customer. The price is set based on the third-party service provider selected to be used by the customer as well as the speed and location of shipment. Revenue is recognized at a point in time when the shipping label is printed.
Banner Advertising Campaign Revenue consists of fees charged to customers for advertisement placement and impressions generated through the GunBroker website. The performance obligation is to generate the number of impressions specified by the customer on banner advertisements on the GunBroker website using the placement selected by the customer. The price is set by the GunBroker user agreement on the website based on standalone selling prices, or by advertising insertion order as negotiated by a media broker. If the number of impressions promised is not generated, the customer receives a refund and the refund is applied to the transaction price. Banner advertising campaigns generally run for one month, and revenue is recognized at a point in time at the end of the selected month.
Product Sales consists of fees charged for the liquidation of excess inventory for partner distributors. The performance obligation is to sell and ship the inventory item as initiated by the customer. The price depends on whether the inventory is a fixed price item or an auction item. For a fixed price item, the Company performs research to determine the current market rate for such an item, and the item is listed at that price. For an auction item, the price is set by what the buyer is willing to pay. The Company acts as a principal in these transactions due to the extent of control they have over the product prior to the sale. Due to the principal determination, gross revenue is recognized at a point in time when the item has been shipped.
Identity Verification consists of fees charged to customers for identity verification in order to gain access to the GunBroker website. The performance obligation is to process the identity verification as initiated by the customer. The price is set by the GunBroker user agreement on the website based on a stand-alone selling price. Revenue is recognized at a point in time when the identity verification is completed.
| 12 |
AMMO, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the three months ended June 30, 2024 and year end March 31, 2024, the Company’s customers that comprised more than ten percent (10%) of total revenues and accounts receivable were as follows.
Revenues at June
30, 2024 | Accounts Receivable | |||||||||||
| PERCENTAGES | Ended | June 30, 2024 | March 31, 2024 | |||||||||
| Customers: | ||||||||||||
| A | % | |||||||||||
Disaggregated Revenue Information
The following table represents a disaggregation of revenue from customers by category. We attribute net sales to categories by product or service types; ammunition, ammunition casings, and marketplace fees. We note that revenue recognition processes are consistent between product and service type, however, the amount, timing and uncertainty of revenue and cash flows may vary by each product type due to the customers of each product and service type.
| For the Three Months Ended | ||||||||
| June 30, 2024 | June 30, 2023 | |||||||
| Ammunition sales(1) | $ | $ | ||||||
| Marketplace fee revenue | ||||||||
| Ammunition casings sales | ||||||||
| Total Sales | $ | $ | ||||||
| (1) |
Ammunition products are sold through “Big Box” retailers, manufacturers, local ammunition stores, and shooting range operators. We also sell direct to customers online. In contrast, our ammunition casings products are sold to manufacturers. Marketplace fees are generated through our GunBroker online auction marketplace.
Cost of Revenues
Cost of Revenues for our ammunition segment consists of product cost and cost directly and indirectly associated with getting those products to a sellable state and for our marketplace segment, consists of cost associated with facilitating transactions on the platform.
Advertising Costs
We
expense advertising costs under our Ammunition segment as they are incurred in selling and marketing expenses of operating expenses.
Marketplace Segment advertising costs are expensed as they are incurred in cost of revenues. We incurred advertising expenses under
our Ammunition segment of $
Inventories
We state inventories at the lower of cost or net realizable value. We determine cost using the average cost method. Our inventory consists of raw materials, work in progress, and finished goods. Cost of inventory includes cost of parts, labor, quality control, and all other costs incurred to bring our inventories to condition ready to be sold. We periodically evaluate and adjust inventories for obsolescence.
| 13 |
AMMO, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Property and Equipment
We
state property and equipment at cost, less accumulated depreciation. We capitalize major renewals and improvements, while we charge minor
replacements, maintenance, and repairs to current operations. We compute depreciation by applying the straight-line method over estimated
useful lives, which are generally
Compensated Absences
We accrue a liability for compensated absences in accordance with Accounting Standards Codifications 710 – Compensation – General (“ASC 710”).
Research and Development
To date, we have expensed all costs associated with developing our product specifications, manufacturing procedures, and products through our cost of products sold, as this work was done by the same employees who produced the finished product. We anticipate that it may become necessary to reclassify research and development costs into our operating expenditures for reporting purposes as we begin to develop new technologies and lines of ammunition.
Excise Tax
As
a result of regulations imposed by the Federal Government for sales of ammunition to non-government U.S. entities, we charge and collect
an
Fair Value of Financial Instruments
Fair value estimates discussed herein are based upon certain market assumptions and pertinent information available to us as of June 30, 2024. The respective carrying value of certain on-balance-sheet financial instruments approximated their fair value. These financial instruments include cash, accounts receivable, accounts payable, amounts due to related parties, and the construction note payable. Fair values were assumed to approximate carrying values because they are short term in nature and their carrying amounts approximate fair values or they are payable on demand.
We account for stock-based compensation at fair value in accordance with Accounting Standards Codification 718 – Compensation – Stock Compensation (“ASC 718”), which requires the measurement and recognition of compensation expense for all share-based payment awards to employees and directors. Stock-based compensation is recognized on a straight-line basis over the vesting periods and forfeitures are recognized in the periods they occur. We account for common stock purchase option awards by estimating the fair value of each option award on the grant date using the Black-Scholes option pricing model that uses assumption and estimates that we believe are reasonable. There were and shares of common stock issued to employees, members of the Board of Directors, and members of our advisory committee for services during the three months ended June 30, 2024 and June 30, 2023, respectively.
Concentrations of Credit Risk
Accounts
at banks are insured by the Federal Deposit Insurance Corporation (“FDIC”) up to $
Income Taxes
We
file federal and state income tax returns in accordance with the applicable rules of each jurisdiction. We account for income taxes under
the asset and liability method in accordance with Accounting Standards Codification 740 - Income Taxes (“ASC 740”). The provision
for income taxes includes federal, state, and local income taxes currently payable, and deferred taxes. We recognize deferred tax assets
and liabilities for the future tax consequences attributable to differences between the financial statement carrying amounts of existing
assets and liabilities and their respective tax basis. We measure deferred tax assets and liabilities using enacted tax rates expected
to apply to taxable amounts in years in which those temporary differences are expected to be recovered or settled. If it is more likely
than not that some portion or all of a deferred tax asset will not be realized, a valuation allowance is recognized. In accordance with
ASC 740, we recognize the effect of income tax positions only if those positions are more likely than not of being sustained.
| 14 |
AMMO, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Contingencies
Certain conditions may exist as of the date the condensed consolidated financial statements are issued that may result in a loss to us but will only be resolved when one or more future events occur or fail to occur. We assess such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against us or unasserted claims that may result in such proceedings, we evaluate the perceived merits of any legal proceedings or unasserted claims and the perceived merits of the amount of relief sought or expected to be sought therein.
If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability is reasonably estimated, the estimated liability would be accrued in our condensed consolidated financial statements. If the assessment indicates that a potentially material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, together with an estimate of range of possible loss if determinable and material, would be disclosed.
The Company also received notice in October 2022 that an OSHA whistleblower complaint had been filed with the US Department of Labor by an employee that had been terminated for cause. The regulatory filing was received after AMMO refused to capitulate to the former employee’s demands. AMMO has produced documents and submitted its position statement to OSHA and the matters is currently pending at the agency level.
A former employee was terminated for cause who is seeking contract wages and stock that was earned but clawed back upon their termination. In that case, the Company received a favorable ruling on a partial motion for summary judgment wherein the arbitrator ruled the employee had refused to return funds he received as reimbursement for invoices he never paid. The arbitrator, thus, granted the Company’s partially dispositive motion. The remaining claims went to an arbitration hearing which was completed and the arbitrator ordered closing briefs, which the parties exchanged. On June 11, 2024, the Arbitrator entered an Arbitration Award in which found in the former employee’s favor of their contract claim, but against the former employee on their breach of the implied covenant of good faith and fair dealing. The Arbitrator awarded the Company an offset for the invalid business expenses for which the former employee was reimbursed. The Arbitrator also ordered return of the shares to which AMMO claimed entitlement. The Arbitrator awarded the former employee severance payments, attorneys fees and costs, which the Company timely paid the arbitration award.
On
April 30, 2023, Director and stockholder Steve Urvan filed suit in the Delaware Court of Chancery against the Company, and certain AMMO
directors, former directors, employees, former employees and consultants. Urvan’s claims include fraudulent inducement, unjust
enrichment and violations of the Arizona Securities Act. The suit seeks a Court order for partial recission of the Merger and compensatory
damages of not less than $
| 15 |
AMMO, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
On December 6, 2023, Steve Urvan initiated a separate action against the Company in his capacity as director under 8 Del. C. § 220(d) to inspect certain of the Company’s books and records (the “Books and Records Action”). In the Books and Records Action, Mr. Urvan alleges that the Company wrongfully refused to provide him with access to certain categories of documents following demands that he made on the Company on March 3, 2023, and November 9, 2023. The Company asserted as an affirmative defense that Mr. Urvan’s primary purpose for their demands is to obtain documents to support their claims in the Delaware Plenary Litigation, in which discovery was then stayed, and to undercut AMMO’s positions before the SEC. The Court held a one-day trial on February 26, 2024, in Georgetown, Delaware. On February 27, 2024, the Court in the Delaware Plenary Litigation issued an opinion that had the effect of lifting the discovery stay. On February 28, 2024, AMMO informed the judge presiding over the Books and Records Action that “[i]n AMMO’s view, the [Plenary Action] Opinion has effectively mooted this [Books and Records] action.” On April 9, 2024, AMMO began producing documents in response to Mr. Urvan’s demands pursuant to a Stipulation and Order Governing AMMO’s Document Productions. The Court has not issued a post-trial ruling and document production remains ongoing.
On
January 18, 2024, Innovative Computer Professionals, Inc. d/b/a Digital Cash Processing (“DCP”) filed a civil action in Minnesota
state court against Outdoors Online, LLC d/b/a Gunbroker.com (“Gunbroker”) for breach of contract (the “MN Action”).
In the MN Action, DCP alleges that Gunbroker.com breached a May 2021 contract, pursuant to which DCP was to provide specified digital
payment processing services, and it alleges $
On
June 24, 2024 the Company entered into a Confidential Settlement Agreement and Mutual General Release (the “Settlement
Agreement”) with Triton Value Partners, LLC, Donald Gasgarth, Paul Freischlag, Jr., Jeff Zwitter (the
“Plaintiffs,” and together with the Defendants and the Company, the “Parties” or, individually,
“Party”), and Steven Urvan and TVP Investments LLC (the “Urvan Defendants”) and Gunbroker.com, LLC, IA TECH,
LLC, and GB Investments, Inc. (the “Gunbroker Defendants,” and collectively with the Urvan Defendants, the
“Defendants”) to fully resolve and settle all disputes and claims related to the litigation between the Defendants and
Plaintiffs captioned Triton Value Partners, LLC et al. v. TVP Investments, LLC et al., Cobb County Superior Court, CAFN 18104869
(the “Action”). Pursuant to the Settlement Agreement, the GunBroker Defendants agreed to pay the Plaintiffs $
We
have accrued for contingencies totaling approximately $
| 16 |
AMMO, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
We calculate basic loss per share using the weighted-average number of shares of common stock outstanding during each reporting period. Diluted loss per share includes potentially dilutive securities, such as outstanding options and warrants. We use the treasury stock method in the determination of dilutive shares outstanding during each reporting period. We have issued warrants to purchase shares of common stock. Due to the net loss attributable to common shareholders for the three months ended June 30, 2024, potentially dilutive securities, which consists of of respective common stock purchase options were excluded, as a result of the treasury stock method, from the dilutive EPS calculation as the effect would be antidilutive. Due to the loss from operations for the three months ended June 30, 2023, potentially dilutive securities, which consists of warrants and equity incentive awards were excluded, as a result of the treasury stock method, from the dilutive EPS calculation as the effect would be antidilutive.
For the Three Months Ended June 30, | ||||||||
| 2024 | 2023 | |||||||
| Numerator: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Less: Preferred stock dividends | ( | ) | ( | ) | ||||
| Net loss attributable to common stockholders | $ | ( | ) | $ | ( | ) | ||
| Denominator: | ||||||||
| Weighted average shares of common stock – Basic | ||||||||
| Effect of dilutive common stock purchase warrants | ||||||||
| Effect of dilutive equity incentive awards | ||||||||
| Effect of dilutive common stock purchase options | ||||||||
| Earnings per share: | ||||||||
| Loss per share attributable to common stockholders – basic | $ | ( | ) | $ | ( | ) | ||
| Loss per share attributable to common stockholders – diluted | $ | ( | ) | $ | ( | ) | ||
NOTE 4 – INVENTORIES
At June 30, 2024 and March 31, 2024, the inventory balances are composed of:
| June 30, 2024 | March 31, 2024 | |||||||
| Finished product | $ | $ | ||||||
| Raw materials | ||||||||
| Work in process | ||||||||
| $ | $ | |||||||
| 17 |
AMMO, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 – DUE FROM RELATED PARTIES
As a result of the
contingency recognized for the Settlement Agreement described in the Contingencies section of Note 2, we have recorded a receivable of $
NOTE 6 – PROPERTY, PLANT, AND EQUIPMENT
Property and equipment consisted of the following at June 30, 2024 and March 31, 2024:
| June 30, 2024 | March 31, 2024 | |||||||
| Leasehold Improvements | $ | $ | ||||||
| Building | ||||||||
| Furniture and Fixtures | ||||||||
| Vehicles | ||||||||
| Equipment | ||||||||
| Tooling | ||||||||
| Construction in Progress | ||||||||
| Total property and equipment | $ | $ | ||||||
| Less accumulated depreciation | ( | ) | ( | ) | ||||
| Net property and equipment | $ | $ | ||||||
Depreciation
Expense for the three months ended June 30, 2024 and 2023 totaled $
NOTE 7 – FACTORING LIABILITY
On
July 1, 2019, we entered into a Factoring and Security Agreement with Factors Southwest, LLC (“FSW”). FSW may purchase from
time to time the Company’s Accounts Receivables with recourse on an account by account basis. The twenty-four month agreement contains
a maximum advance amount of $
NOTE 8 – LEASES
We
lease office, manufacturing, and warehouse space in Scottsdale, AZ, Atlanta and Marietta, GA, and Manitowoc, WI under contracts we classify
as operating leases. None of our leases are financing leases. The Scottsdale lease has been extended through 2029 and does not include
a renewal option. We terminated our lease agreement in Marrietta during the year ended March 31, 2024 and decreased our Right of Use
Asset and Operating Lease Liabilities by $
As
of the June 30, 2024 and March 31, 2024, total Right of Use Assets were $
| 18 |
AMMO, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Consolidated
lease expense for the three months ended June
30, 2024 was $
The
weighted average remaining lease term and weighted average discount rate for operating leases were
Future minimum lease payments under non-cancellable leases as of June 30, 2024, are as follows:
| Years Ended March 31, | ||||
| 2025(1) | $ | |||
| 2026 | ||||
| 2027 | ||||
| 2028 | ||||
| 2029 | ||||
| Less: Amount Representing Interest | ( | ) | ||
| $ | ||||
| (1) |
| 19 |
AMMO, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 – CONSTRUCTION NOTE PAYABLE
On
October 14, 2021, we entered into a Construction Loan Agreement (the “Loan Agreement”) with Hiawatha National Bank (“Hiawatha”).
The Loan Agreement specifies that Hiawatha may lend up to $
Additionally,
on October 14, 2021, we issued a Promissory Note in favor of Hiawatha (the “Note”) in the amount of up to $
We
can prepay the Note in whole or in part starting in July 2022 with a prepayment premium of one percent (
We
are required to maintain a Debt Service Coverage Ratio, as defined in the terms of the Loan Agreement, of not less than
During
the year ended March 31, 2023, approximately $
NOTE 10 – CAPITAL STOCK
Our authorized capital consists of shares of common stock with a par value of $ per share.
During the three months ended June 30, 2024, we issued shares of common stock net of the acquired common shares held by employees who tendered owned common shares to satisfy the tax withholding as follows:
| ● |
shares valued at $ |
| 20 |
AMMO, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
At June 30, 2024, outstanding and exercisable stock purchase warrants consisted of the following:
Number of Shares | Weighted Average Exercise Price | Weighted Average Life Remaining (Years) | ||||||||||
| Outstanding at March 31, 2024 | $ | |||||||||||
| Granted | - | |||||||||||
| Exercised | - | |||||||||||
| Forfeited or cancelled | ( | ) | - | |||||||||
| Outstanding at June 30, 2024 | $ | |||||||||||
| Exercisable at June 30, 2024 | $ | |||||||||||
As
of June 30, 2024, we had
Option Granted
During
the year ended March 31, 2024, we granted stock options (“Options”) to purchase
shares of our Common Stock to our Chief Executive Officer, of which (i)
Options shall vest on the Effective Date, and (ii)
Options shall vest in equal quarterly installments of
over 3 years beginning on the first quarter ended September 30, 2023. The Options shall (a) be exercisable at an exercise price per
share equal to the closing market price of the Company’s common stock on the date of the grant, (b) have a term of ten years,
and (c) be on such other terms as shall be determined by the Board (or the Compensation Committee of the Board) and set forth in a
customary form of stock option agreement under the Plan evidencing the Options. We recognized $
NOTE 11 – PREFERRED STOCK
On May 18, 2021, the Company filed a Certificate of Designations (the “Certificate of Designations”) with the Secretary of State of the State of Delaware to establish the preferences, voting powers, limitations as to dividends or other distributions, qualifications, terms and conditions of redemption and other terms and conditions of the Series A Preferred Stock.
The
Company will pay cumulative cash dividends on the Series A Preferred Stock when, as and if declared by its board of directors (or a duly
authorized committee of its board of directors), only out of funds legally available for payment of dividends. Dividends on the Series
A Preferred Stock will accrue on the stated amount of $ per share of the Series A Preferred Stock at a rate per annum equal to
Generally, the Series A Preferred Stock is not redeemable by the Company prior to May 18, 2026. However, upon a change of control or delisting event (each as defined in the Certificate of Designations), the Company will have a special option to redeem the Series A Preferred Stock for a limited period of time.
Preferred
dividends accumulated as of June 30, 2024, were $
| 21 |
AMMO, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12 – GOODWILL AND INTANGIBLE ASSETS
Amortization
expenses related to our intangible assets for the three months ended June 30, 2024 and 2023 were $
| June 30, 2024 | ||||||||||||||||
| Life | Licenses | Patent | Other Intangible Assets | |||||||||||||
| Licensing Agreement – Jesse James | $ | $ | - | $ | - | |||||||||||
| Licensing Agreement – Jeff Rann | - | - | ||||||||||||||
| Streak Visual Ammunition patent | - | - | ||||||||||||||
| SWK patent acquisition | - | - | ||||||||||||||
| Jagemann Munition Components: | ||||||||||||||||
| Customer Relationships | - | - | ||||||||||||||
| Intellectual Property | - | - | ||||||||||||||
| Tradename | - | - | ||||||||||||||
| GDI Acquisition: | ||||||||||||||||
| Tradename | - | - | ||||||||||||||
| Customer List | - | - | ||||||||||||||
| Intellectual Property | - | - | ||||||||||||||
| Other Intangible Assets | - | - | ||||||||||||||
| Accumulated amortization – Licensing Agreements | ( | ) | - | - | ||||||||||||
| Accumulated amortization – Patents | - | ( | ) | - | ||||||||||||
| Accumulated amortization – Intangible Assets | - | - | ( | ) | ||||||||||||
| $ | $ | $ | ||||||||||||||
Annual amortization of intangible assets for the next five fiscal years are as follows:
| Years Ended March 31, | Estimates for Fiscal Year | |||
| 2024(1) | $ | |||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| 2028 | ||||
| Thereafter | ||||
| $ | ||||
| (1) |
| 22 |
AMMO, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13 – SEGMENTS
Our Chief Executive Officer reviews financial performance based on our two operating segments as follows:
| ● | Ammunition – which consists of our manufacturing business. The Ammunition segment engages in the design, production and marketing of ammunition, ammunition component and related products. | |
| ● | Marketplace – which consists of the GunBroker E-commerce marketplace. In its role as an auction site, GunBroker supports the lawful sale of firearms, ammunition, and hunting/shooting accessories. |
The reporting of the separate allocation of certain corporate general and administrative expenses includes non-cash stock compensation expense. The following tables set forth certain financial information utilized by management to evaluate our operating segments for the interim period presented:
For the Three Months Ended June 30, 2024 | ||||||||||||||||
| Corporate | ||||||||||||||||
| and other | ||||||||||||||||
| Ammunition | Marketplace | expenses | Total | |||||||||||||
| Net Revenues | $ | $ | $ | $ | ||||||||||||
| Cost of Revenues | ||||||||||||||||
| General and administrative expense | ||||||||||||||||
| Depreciation and amortization | ||||||||||||||||
| Income/(Loss) from Operations | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | ||||||
For the Three Months Ended June 30, 2023 | ||||||||||||||||
| Corporate | ||||||||||||||||
| and other | ||||||||||||||||
| Ammunition | Marketplace | expenses | Total | |||||||||||||
| Net Revenues | $ | $ | $ | $ | ||||||||||||
| Cost of Revenues | ||||||||||||||||
| General and administrative expense | ||||||||||||||||
| Depreciation and amortization | ||||||||||||||||
| Income/(Loss) from Operations | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | ||||||
| 23 |
AMMO, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14 – INCOME TAXES
The
income tax provision effective tax rates were (
The Company has never had an Internal Revenue Service audit; therefore, the tax periods ended March 31, 2021, 2022, 2023, and 2024 are subject to audit.
NOTE 15 – RELATED PARTY TRANSACTIONS
Through
our acquisition of Gemini, a related party relationship was created through one of our directors, Mr. Steve Urvan, by their ownership
of entities that provided services to Gemini. There was $
NOTE 16 – SUBSEQUENT EVENTS
Related party transactions
Effective
July 12, 2024, our $
Settlement Agreement Payment
On August 8, 2024, the Company paid $
| 24 |
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Management’s Discussion and Analysis of Financial Condition and Results of Operations is provided to assist the reader in understanding the results of operations, financial condition, and liquidity through the eyes of our management team. This section should be read in conjunction with other sections of this Quarterly Report, specifically, our condensed consolidated financial Statements and Supplementary Data.
FORWARD-LOOKING STATEMENTS
This document contains certain “forward-looking statements.” All statements other than statements of historical fact are “forward-looking statements” for purposes of federal and state securities laws, including, but not limited to, any projections of earnings, revenue or other financial items; any statements of the plans, strategies, goals and objectives of management for future operations; any statements concerning proposed new products and services or developments thereof; any statements regarding future economic conditions or performance; any statements or belief; and any statements of assumptions underlying any of the foregoing.
Forward looking statements may include the words “may,” “could,” “estimate,” “intend,” “continue,” “believe,” “expect,” or “anticipate,” or other similar words, or the negative thereof. These forward-looking statements present our estimates and assumptions only as of the date of this report. Accordingly, readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the dates on which they are made. We do not undertake to update forward-looking statements to reflect the impact of circumstances or events that arise after the dates they are made. You should, however, consult further disclosures and risk factors we included in the section titled Risk Factors contained herein.
In our filings with the Securities and Exchange Commission, references to “AMMO, Inc.”, “AMMO”, “the Company”, “we,” “us,” “our” and similar terms refer to AMMO, Inc., a Delaware corporation, and its wholly owned consolidated subsidiaries.
Overview
AMMO, Inc., owner of the GunBroker Marketplace, the largest online marketplace serving the firearms and shooting sports industries, and a vertically integrated producer of high-performance ammunition and premium components began its operations in 2017.
Through our GunBroker Marketplace segment (acquired in April 2021), we allow third party sellers to list items consisting of firearms, hunting gear, fishing equipment, outdoor gear, collectibles, and much more on our site, while facilitating compliance with federal and state laws that govern the sale of firearms and restricted items. This allows our base of over 8.1 million users to follow ownership policies and regulations through our network of over 31,000 federally licensed firearms dealers as transfer agents. The nature and operation of the Marketplace as an online auction and sales platform also affords our Company a unique view into the total domestic market for the purpose of understanding sales trends at a granular level across all elements of the outdoor sports and shooting space. Our vision is to expand the services on GunBroker and to become a peer to those in our industry. Recent expansions we have made to the platform are;
● Payment Processing – facilitating payment between parties allowing sellers to offer fast and secure electronic payments and allowing buyers to experience the ease of instant checkout.
● Carting Ability – enables our buyers to checkout multiple items from multiple sellers in a single transaction. Our buyers are able to finalize one transaction including both regulated and nonregulated items, while also affording them the ability to ship their purchases to more than one location.
● GunBroker Analytics – through the compilation and refinement of vast Marketplace data, we offer e-commerce market analytics to our industry peers allowing them to better manage business strategy and planning. The analytics offering will be rebranded to Outdoor Analytics during fiscal year 2025 to expand service offerings.
● GunBroker Advertising – content creation for manufactures, email campaigns and banner ads are all part of our advertising offerings to the outdoor industry.
Through our Ammunition segment, we are tailoring our focus of our manufacturing operations to the production of premium pistol and rifle ammunition and supporting industry partners with manufactured components such as premium pistol and rifle brass casings. We will continue to leverage our flagship brands that are proprietary in nature like STREAK VISUAL AMMUNITION™ , /stelTH/™, Signature-on-Target, and HUNT and extend our product offering with premium rifle lines and brands that complement our technologically innovative heritage. We also continue to ensure dynamic performance under the exacting standards of the U.S. military complex in support of our cutting-edge developmental ammunition programs as we seek out and effectively execute upon new governmental-based opportunities.
| 25 |
Results of Operations
Management’s Discussion and Analysis of Financial Condition and Results of Operations is intended to provide our financial statements with a narrative from the perspective of management on our financial condition, results of operations, liquidity, and certain other factors that may affect our future results. The following information should be read in conjunction with our condensed consolidated financial statements included in this Quarterly Report beginning on page 3.
Our financial results for the three months ended June 30, 2024, reflect our transition into our new operational strategic position, focusing on higher brass casing production and sales. We believe that we have hired a strong team of professionals and developed innovative products to establish our presence as a high-quality ammunition provider and marketplace. We continue to focus on building profitability through our rifle brass manufacturing. We experienced a 9.6% decrease in our Net Revenues for the three months ended June 30, 2024, compared with the three months ended June 30, 2023. This was the result of decreased revenue in both of our reporting segments due to changes in market demand as discussed below, and specifically for our ammunition division, changes in pricing, and sales mix. We believe that the shift in our operational strategy focusing on higher brass casing production and sales negatively impacted our sales in the three months ended June 30, 2024, as compared to the three months ended June 30, 2023. Our focus on creating profitability is in contrast to revenue growth.
The following table presents summarized financial information taken from our consolidated statements of operations for the three months ended June 30, 2024, compared with the three months ended June 30, 2023:
For the Three Months Ended | ||||||||
June 30, 2024 | June 30, 2023 | |||||||
| (Unaudited) | (Unaudited) | |||||||
| Net Revenues | $ | 30,953,550 | $ | 34,254,575 | ||||
| Cost of Revenues | 21,164,428 | 20,230,035 | ||||||
| Gross Margin | 9,789,122 | 14,024,540 | ||||||
| Sales, General and Administrative Expenses | 19,465,461 | 15,703,467 | ||||||
| Loss from Operations | (9,676,339 | ) | (1,678,927 | ) | ||||
| Other income (expense) | ||||||||
| Other expense | 55,710 | 488,750 | ||||||
| Loss before provision for income taxes | $ | (9,620,629 | ) | $ | (1,190,177 | ) | ||
| Benefit for income taxes | (2,559,342 | ) | (97,144 | ) | ||||
| Net Loss | $ | (7,061,287 | ) | $ | (1,093,033 | ) | ||
Non-GAAP Financial Measures
We analyze operational and financial data to evaluate our business, allocate our resources, and assess our performance. In addition to total net sales, net loss, and other results under accounting principles generally accepted in the United States (“GAAP”), the following information includes key operating metrics and non-GAAP financial measures that we use to evaluate our business. We believe that these measures are useful for period-to-period comparisons of the Company. We have included these non-GAAP financial measures in this Annual Report on Form 10-K because they are key measures we use to evaluate our operational performance, produce future strategies for our operations, and make strategic decisions, including those relating to operating expenses and the allocation of our resources. Accordingly, we believe that these measures provide useful information to investors and others in understanding and evaluating our operating results in the same manner as our management and Board of Directors.
Adjusted EBITDA
| For the Three Months Ended | ||||||||
| 30-Jun-24 | 30-Jun-23 | |||||||
| Reconciliation of GAAP net loss to Adjusted EBITDA | ||||||||
| Net Loss | $ | (7,061,287 | ) | $ | (1,093,033 | ) | ||
| Benefit for income taxes | (2,559,342 | ) | (97,144 | ) | ||||
| Depreciation and amortization | 4,692,556 | 4,620,087 | ||||||
| Interest expense, net | 196,522 | 204,201 | ||||||
| Employee stock awards | 606,199 | 822,797 | ||||||
| Stock grants | 68,750 | 50,750 | ||||||
| Common stock purchase options | 41,055 | - | ||||||
| Other income (expense), net | (252,232 | ) | (692,951 | ) | ||||
| Contingent consideration fair value | (19,986 | ) | (21,024 | ) | ||||
| Other nonrecurring expenses(1) | 6,249,893 | 2,759,726 | ||||||
| Adjusted EBITDA | $ | 1,962,128 | $ | 6,553,409 | ||||
| (1) | For the three months ended June 30, 2024 and 2023, other nonrecurring expenses consist of professional and legal fees that are nonrecurring in nature. There were $3.2 million in expenses related to the settlement contingency included in other nonrecurring expenses for the three months ended June 30, 2024. |
| 26 |
Adjusted EBITDA is a non-GAAP financial measure that displays our net loss, adjusted to eliminate the effect of certain items as described below.
We have excluded the following non-cash expenses from our non-GAAP financial measures: provision or benefit for income taxes; depreciation and amortization; share-based or warrant-based compensation expenses; and changes to the contingent consideration fair value. Adjusted EBITDA as a non-GAAP financial measure also excludes other cash interest income and expense, and non-recurring expenses related to professional and legal fees as the nature of these items are not components of our core operations. We believe that it is useful to exclude these non-cash expenses and non-recurring expenses because the amount of such expenses in any specific period may not directly correlate to the underlying performance of our business operations.
Non-GAAP financial measures have limitations, should be considered as supplemental in nature and are not meant as a substitute for the related financial information prepared in accordance with GAAP. These limitations include the following:
| ● | Employee stock awards, stock grants, and common stock purchase options expense has been, and will continue to be for the foreseeable future, a significant recurring expense in the Company and an important part of our compensation strategy; | |
| ● | the assets being depreciated or amortized may have to be replaced in the future, and the non-GAAP financial measures do not reflect cash capital expenditure requirements for such replacements or for new capital expenditures or other capital commitments; | |
| ● | non-GAAP measures do not reflect changes in, or cash requirements for, our working capital needs; and | |
| ● | other companies, including companies in our industry, may calculate their non-GAAP financial measures differently or not at all, which reduces their usefulness as comparative measures. |
Because of these limitations, you should consider the non-GAAP financial measures alongside other financial performance measures, including our net loss and our other financial results presented in accordance with GAAP.
Net Revenues
The following table shows our revenues by the various categories that comprise our total revenues for the three months ended June 30, 2024 and June 30, 2023. “Proprietary ammunition” includes those lines of ammunition that we manufacture at our facilities and sell under the brand names “STREAK VISUAL AMMUNITION™” and “/stelTH/™”. We define “standard ammunition” as non-proprietary ammunition that directly competes with other brand manufacturers. Our “standard ammunition” includes ammunition that we manufacture at our facilities as well as any completed ammunition that we acquire in the open market for sale to others. Also included in this category is low-cost target pistol and rifle ammunition as well as bulk packaged ammunition that we manufacture using reprocessed brass casings. Ammunition within the standard ammunition product line typically carries much lower gross margins than our proprietary ammunition.
| For the Three Months Ended | ||||||||
| June 30, 2024 | June 30, 2023 | |||||||
| Proprietary Ammunition | $ | 1,359,263 | $ | 1,154,802 | ||||
| Standard Ammunition | 12,000,291 | 12,951,227 | ||||||
| Ammunition Casings | 5,312,005 | 6,236,344 | ||||||
| Marketplace Revenue | 12,281,991 | 13,912,202 | ||||||
| Total Sales | $ | 30,953,550 | $ | 34,254,575 | ||||
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Net Revenues for the three months ended June 30, 2024, decreased by $3.4 million, or 9.6%, from the prior year due to changes in market conditions. This was due to the result of a decrease of $1.0 million in sales of bulk pistol and rifle ammunition, $1.0 million in our casing sales and $1.6 million in sales generated from our GunBroker Marketplace, which primarily consists of auction revenue, as well as payment processing revenue, and shipping income, partially offset by an increase of $0.2 million in sales of Proprietary Ammunition. We believe that the shift in our operational strategy focusing on higher brass casing production and sales negatively impacted our sales in the three months ended June 30, 2024, as compared to the three months ended June 30, 2023. Additionally, equipment malfunction related to rifle production in our manufacturing facility in Manitowoc caused lower production output contributing to lower sales results. Management anticipates an increase in ammunition casings sales as capacities come online in its new Manitowoc facility.
The opening in August 2022 of our manufacturing plant in Manitowoc, WI, grants us the ability to increase capacity based upon the needs of the market and through further expansion of our casing and loading lines and allow us to continue to expand distribution into commercial markets, introduce new product lines, and continue to initiate sales to U.S. law enforcement, military, and international markets.
For example, through our acquisition of SWK, the Company has developed and deployed a line of tactical armor piercing (“AP”) and hard armor piercing incendiary (“HAPI”) precision ammunition to meet the lethality requirements of both the U.S. and foreign military customers. We continue to demonstrate our AP and HAPI ammunition to military personnel at scheduled and invite only events, resulting in increased interest and procurement discussions. The Company has since developed the ballistic match (“BMMPR”) and Signature-on-Target rounds under contract with the U.S. Government in support of U.S. special operations which have been publicly announced pursuant to governmental authorization. Additional work continues in support of the military operations of the U.S. and its ally military components which is not currently subject to disclosure.
It is important to note that, although U.S. law enforcement, military and international markets represent significant opportunities for our Company, they also have a long sales cycle. The Company’s sales team has been effective in establishing sales and distribution channels, both in the United States and abroad, that we anticipated will drive sustained sales opportunity in the military, law enforcement, and commercial markets.
Cost of Revenues
Cost of Revenues decreased by approximately $1.0 million from $21.2 million to $20.2 million for the three months ended June 30, 2024, compared to the three months ended June 30, 2023. This was the result of a decrease in net sales as well increases to non-cash depreciation related to increases in production equipment, expensing of increased labor, and overhead used to produce finished product during 2024 as compared to 2023. Cost of Revenues for our ammunition segment consists of product cost and cost directly and indirectly associated with getting those products to a sellable state and for our marketplace segment, consists of cost associated with facilitating transactions on the platform.
Gross Margin
Our gross margin percentage, which measures our gross profit as a percentage of sales decreased to 31.6% during the three months ended June 30, 2024, from 40.9% for the three months ended June 30, 2023. This was a result of increased cost of materials, labor, and overhead in our ammunition segment, which was offset by our marketplace, GunBroker.com which, by nature has significantly higher margins than our manufactured products.
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We believe that as we grow ammunition segment sales through new markets and expanded distribution that our gross margins will continue to increase. Our goal in the next 12 to 24 months is to continue to improve our gross margins. This will be accomplished through the following:
| ● | Capacity improvements at our manufacturing plant and expansion of our rifle casing and loading lines; | |
| ● | Increased product sales, specifically of proprietary and flagship lines of ammunition, like the STREAK VISUAL AMMUNITION™, /stelTH/™, Signature-on-Target, and HUNT all of which carry higher margins as a percentage of their selling price; | |
| ● | Introduction of new lines of ammunition that carry higher margins in the consumer and government sectors; | |
| ● | Reduced component costs through insourced operations of our ammunition segment and expansion of strategic relationships with component providers resulting in cost savings; | |
| ● | Expanded use of automation equipment that reduces the total labor required to assemble finished products; | |
| ● | Vertical integration into tooling manufacturing and annealing of rifle cases that have previously been outsourced; | |
| ● | Better leverage of our fixed costs through expanded production to support the sales objectives | |
| ● | With the addition of the multi-item cart, the payment processing, we’ve adjusted our category fees for nonregulated items that will enable us to increase our take rate across the platform as we enable cross selling; | |
| ● | And, we are growing our advertising sales, financing partnerships, and bringing shipping options to our community. |
Operating Expenses
Operating expenses consists of selling and marketing expenses, corporate general & administrative, and employee salaries and related expenses. Operating expenses increased by approximately $3.8 million for the three months ended June 30, 2024, compared to the three months ended June 30, 2023, and increased as a percentage of sales to 62.9% from 45.8% for the three months ended June 30, 2024 and 2023, respectively. This increase was primarily due to the $3.2 million expenses recognized for the settlement contingency and a $0.3 million, or 8.4%, increase in employee salaries and related expenses during the three months ended June 30, 2024, compared to the three months ended June 30, 2023.
Selling and marketing expenses consist of commissions related to our sales, as well as advertising and marketing expenses. During the three months ended June 30, 2024, our selling and marketing expense remained constant primarily due to the varying volumes product sales affecting the amounts of sales commissions.
The increase in our corporate general and administrative expenses was due primarily to the $3.2 million expenses recognized for the settlement contingency and an increase of $0.2 million of nonrecurring expenses, consisting of professional and legal fees that are nonrecurring in nature.
Other Income and Expenses
Total other expenses for the three months ended June 30, 2024, decreased by $0.4 million compared to the three months ended June 30, 2023. This was primarily the result of $0.3 decrease in other income.
Interest expense remained constant for the three months ended June 30, 2024, compared to the prior year period.
Income Taxes
For the three months ended June 30, 2024 and 2023, we recorded a benefit for federal and state income taxes of approximately $2.6 million and $0.1 million, respectively.
Net Loss
We ended the three months ended June 30, 2024, with a Net Loss of approximately $7.1 million compared with a Net Loss of approximately $1.1 million for the three months ended June 30, 2023.
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Our goal is to continue to improve our operating results as we focus on increasing sales and reducing our operating expenses.
Liquidity and Capital Resources
As of June 30, 2024, we had $50,754,570 of cash and cash equivalents, a decrease of $4,831,871 from March 31, 2024.
Working Capital is summarized and compared as follows:
| June 30, 2024 | March 31, 2024 | |||||||
| Current assets | $ | 133,953,188 | $ | 131,525,266 | ||||
| Current liabilities | 42,266,339 | 30,940,272 | ||||||
| $ | 91,686,849 | $ | 100,584,994 | |||||
Changes in cash flows are summarized as follows:
Operating Activities
For the three months ended June 30, 2024, net cash used in operations totaled $0.5 million. This was primarily the result of our net loss of $7.1 million, increases in inventories of $9.2 million, accrued liabilities of $5.2 million, deposits of $1.0 million, and due from related parties of $4.8 million offset by decreases to our accounts receivable of $8.7 million. The cash provided by operations included the benefit of non-cash expenses for depreciation and amortization of $4.7 million, deferred tax benefits of $2.6 million and employee stock compensation of $0.6 million.
For the three months ended June 30, 2023, net cash provided by operations totaled approximately $13.0 million. This was primarily the result of net loss of approximately $1.1 million, which was offset by decreases in our accounts receivable of approximately $7.1 million, decreases in prepaid expenses of approximately $0.9 million, and decreases in our accounts payable of approximately $1.7 million, increases in our inventories of approximately $1.6 million, and decreases in deposits of approximately $3.0 million. Non-cash expenses for depreciation and amortization totaled approximately $4.6 million and non-cash expenses for employee stock awards totaled $0.8 million.
Investing Activities
For the three months ended June 30, 2024, we used $1.4 million in net cash for investing activities. Net cash used in investing activities consisted of $1.4 million related to purchases of production equipment, and capitalized development costs related to our marketplace, GunBroker.
For the three months ended June 30, 2023, we used approximately $1.3 million in net cash for investing activities. Net cash used in investing activities consisted of approximately $1.3 million related to purchases of production equipment for our new manufacturing facility in Manitowoc, WI and capitalized development costs related to our marketplace, GunBroker.
Financing Activities
For the three months ended June 30, 2024, net cash used in financing activities was $2.9 million, consisting of $0.7 million of insurance premium note payments, $0.6 million of preferred stock dividends paid, $1.1 million used to repurchase shares of Common Stock pursuant to our repurchase plan, and $0.4 million used in the repurchase of common shares.
For the three months ended June 30, 2023, net cash used in financing activities was approximately $3.3 million. This was the net effect of approximately $1.5 million used in our common stock repurchased plan, $1.0 million from insurance premium note payments, approximately $0.6 million of Preferred Stock dividends paid, and the generation of approximately $14.6 million from accounts receivable factoring, which was offset by payments of approximately $14.6 million.
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Liquidity
Existing working capital, cash flow from operations, bank borrowings, and sales of equity and debt securities are expected to be adequate to fund our operations over the next year. Generally, we have financed operations to date through the proceeds of stock sales, bank financings, and related-party notes. These sources have been adequate to fund our recurring cash expenditures including but not limited to our working capital requirements, capital expenditures to expand our operations, debt repayments, and acquisitions. We intend to continue to use the aforementioned sources of funding for capital expenditures, debt repayments, share repurchases and any potential acquisitions.
Leases
We lease three locations that are used for our offices, production, and warehousing. As of June 30, 2024, we had $2.3 million of fixed lease payment obligations with $0.5 million payable within the next 12 months. Please refer to Note 8 – Leases in our financial statements for additional information.
Construction Note Payable
We have financed a portion of our new production facility with our Construction Note Payable. We expect to make $0.8 million in principal and interest payments within the next 12 months. The principal balance of the Construction Note will mature on October 14, 2026.
Revolving Loan
We have obtained a Revolving Loan with Sunflower Bank, National Association (“N.A.”) for up to $20,000,000 in December of 2023. The proceeds may be used for working capital, general corporate purposes, Permitted Acquisitions, to pay fees and expenses incurred in connection with the Revolving Line, to facilitate our stock repurchase program and to fund our general business requirements. We have not made use of the Revolving Loan as of the date of this filing.
Off-Balance Sheet Arrangements
As of June 30, 2024, we did not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future material effect on our financial condition, net sales, expenses, results of operations, liquidity capital expenditures, or capital resources.
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Critical Accounting Estimates and Policies
Our discussion and analysis of our financial condition and results of operation are based upon our condensed consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these condensed consolidated financial statements require us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, and expenses, however actual results may differ from these estimates. We have identified several accounting principles that we believe are key to the understanding of our financial statements. These important accounting policies and estimates require our most difficult subjective judgements.
We believe that certain assumptions and estimates associated with the valuation of allowances for credit losses, valuation of deferred tax assets, inventories, useful lives of assets, goodwill, intangible assets, stock-based compensation, and warrant-based compensation are material in nature due to the subjectivity associated with them and have the greatest potential impact on our condensed consolidated financial statements. Therefore, we consider the assumptions and estimates associated with these (as further detailed below) to be our critical accounting estimates. Please refer to Note 2 – Summary of Significant Accounting Policies of our condensed consolidated financial statements included in our Annual Report on Form 10-K for the year ended March 31, 2024.
Goodwill
We evaluate goodwill for impairment annually or more frequently when an event occurs or circumstances change that would more likely than not reduce the fair value of the reporting unit below its carrying amount. In testing for goodwill impairment, we may elect to utilize a qualitative assessment to evaluate whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If our qualitative assessment indicates that goodwill impairment is more likely than not, we perform a two-step impairment test. We test goodwill for impairment under the two-step impairment test by first comparing the book value of net assets to the fair value of the reporting unit. If the fair value is determined to be less than the book value or qualitative factors indicate that it is more likely than not that goodwill is impaired, a second step is performed to compute the amount of impairment as the difference between the estimated fair value of goodwill and the carrying value. We estimate the fair value of the reporting units using discounted cash flows. Forecasts of future cash flows are based on our best estimate of future net sales and operating expenses, based primarily on expected category expansion, pricing, market segment share, and general economic conditions. Due to the declines in the value of our stock price and market capitalization in the year ended March 31, 2023, we assessed qualitative factors to determine if it is more likely than not that the fair value of the Marketplace segment is less than its carrying amount. Through our analysis we determined our stock price and market capitalization decline it is not indicative of a decrease in the fair value of our Marketplace segment and a fair value calculation using the discounted cash flows was more appropriate due to the operational performance of the reporting segment. Accordingly, the impairment of Goodwill was not warranted the three months ended June 30, 2024. As of June 2024, the Company has a goodwill carrying value of $90,870,094 , all of which is assigned to the Marketplace segment. However, it is possible that the book values of our Marketplace segment could exceed its fair value, which may result in the recognition of a material, noncash impairment of goodwill for the year ending March 31, 2025.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our market risks are similar to those disclosed under the caption “Quantitative And Qualitative Disclosures About Market Risk” in Part II, Item 7A of our Annual Report on Form 10-K for the year ended March 31, 2024 and filed with the SEC on June 13, 2024 and is hereby incorporated by reference.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our management evaluated the effectiveness of our disclosure controls and procedures as defined in Rule 13a-15(c) and 15d-15(e) under the Exchange Act, as of June 30, 2024. Our disclosure controls and procedures are designed to provide reasonable assurance that information we are required to disclose in the reports we file or submit under the Exchange Act is accumulated and communicated to our management, including our CEO and CFO, as appropriate to allow timely decisions regarding required disclosures, and is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms.
Based on this evaluation, and because of the material weaknesses described below, our CEO and CFO have concluded that our disclosure controls and procedures were not effective at the reasonable assurance level as of June 30, 2024.
Notwithstanding the material weaknesses that were identified and continued to exist as of June 30, 2024, management believes that the financial statements included in this report present fairly in all material respects our financial position, results of operations and cash flows for the period presented, nor were there changes to previously released financial results.
Material weaknesses and management’s remediation plan
A material weakness is a deficiency, or a combination of deficiencies, within the meaning of Public Company Accounting Oversight Board (“PCAOB”) Auditing Standard AS 2201, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis.
Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with U.S. GAAP. The following material weaknesses in our internal control over financial reporting remained as of June 30, 2024:
The Company failed to maintain an effective control environment due to the following:
| ● | the Company failed to fully resolve identified segregation of duties conflicts with system access for designated business and IT users, thus related user access review and application change management procedures around logging could not be relied upon for select Company systems. | |
| ● | the Company failed to maintain effectively designed Information Technology General Controls (“ITGCs”) in the areas of user access, application change management, logical access controls, and segregation of duties for one of the Company’s third-party information technology system that supports the Company’s financial reporting process. | |
| ● | the Company failed to effectively execute management review procedures to validate the completeness and accuracy of transactions and to clearly define and evidence the process used and criteria and judgment applied in performance of critical business activities. |
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Management’s Remediation Initiatives
We have concluded that these material weaknesses arose because we did not have the necessary business processes, systems, personnel, and related internal controls.
In response to the material weaknesses, management, with the oversight of the Audit Committee of the Board of Directors, has continued the process of, and is committed to, designing and implementing effective measures to strengthen our internal controls over financial reporting and remediate the material weaknesses. The Company is committed to ensuring that a proper, consistent tone is communicated throughout the organization, which emphasizes the expectation that previously existing deficiencies will be rectified through implementation of processes and controls to ensure strict compliance with U.S. GAAP and regulatory requirements.
Our third–party consulting firm that specializes in internal audit work, and more specifically internal controls over financial reporting work, has assisted management and will continue to assist management with our risk assessment of internal control over financial reporting as well as documentation and testing of our internal control structure and evaluation of material weaknesses, with special focus on assisting management in the establishment and evaluation of proper segregation of duties procedures and monitoring and controls over ITGCs for the systems that support our financial reporting process. Specifically, with the right compliment of accounting and finance team members now in place, our entire control environment is being evaluated for enhancement of our internal controls over financial reporting.
In addition to the measures noted above, we have made progress in our remediation plan including the following items:
We continue to make enhancements to our control environment by improving guidance, communication of expectations, and importance of internal controls. The Company continues to hire personnel in key positions, and management continues to assess the hiring of additional personnel to ensure that the Company has a sufficient complement of qualified personnel at the right levels, based on any identified gaps in personnel requirements.
As previously disclosed in our Annual Report on Form 10-K for the year ended March 31, 2024, due to accounting system limitations, management is limited in its ability to effectively design and implement general information technology controls around select systems that support the underlying business cycle controls. Management is planning an evaluation of a new accounting system during the current fiscal period for adoption in the next fiscal period. The new system will allow management to effectively design and implement appropriate general information technology controls including enforced segregation of duties. Management has continued the rollout of IT remediation action plans, including developing an enhanced risk assessment process for third-party IT systems and implementation of IT monitoring procedures. In addition, management will continue to evaluate organization structure and hiring of personnel, and enhancement of management review procedures to validate completeness and accuracy of transactions at the time of review.
Commencing during the second quarter of fiscal year 2025, management, with the help of our third-party consulting firm, will perform walkthroughs of our key controls, including those that would be necessary to effectively remediate the existing material weaknesses. A walkthrough is performed to gain comfort regarding the design effectiveness of the key controls. Based on our assessment of the walkthrough results, we will determine if our key controls have been designed effectively. Further assessments will be made of these controls to ascertain operating effectiveness, after which we will be able to determine if the existing material weaknesses have been remediated.
While these actions and planned actions are subject to ongoing management evaluation and will require validation and testing of the design and operating effectiveness of internal controls over a sustained period of financial reporting cycles, we are committed to the continuous improvement of our internal control over financial reporting and will continue to diligently review our internal control over financial reporting.
Changes in Internal Controls
Other than the changes described above, there have not been any changes in our internal control over financial reporting (as such term is defined in Exchange Act in Rule 13a-15(c) and 15d-15(e) under the Exchange Act) during the quarter ended June 30, 2024, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On April 30, 2023, Steve Urvan, one of our directors, filed a lawsuit against the Company and certain individuals (including some of its officers and directors) in the Delaware Court of Chancery. Mr. Urvan’s complaint alleges that he was fraudulently induced to sell GunBroker to the Company. Mr. Urvan seeks partial rescission of the transaction, monetary damages and other relief. The Company and the individual defendants plan to vigorously defend the Company and themselves against Mr. Urvan.
On January 18, 2024, Innovative Computer Professionals, Inc. d/b/a Digital Cash Processing (“DCP”) filed a civil action in Minnesota state court against Outdoors Online, LLC d/b/a Gunbroker.com (“Gunbroker”) for breach of contract (the “MN Action”). In the MN Action, DCP alleges that Gunbroker.com breached a May 2021 contract, pursuant to which DCP was to provide specified digital payment processing services, and it alleges $100 million in damages. Gunbroker denies the allegations in the MN Action, and it plans to vigorously defend the claims asserted against it.
In addition, we are involved in or subject to, or may become involved in or subject to, routine litigation, claims, disputes, proceedings and investigations in the ordinary course of business. While the outcome of lawsuits and other proceedings against us cannot be predicted with certainty, in the opinion of management, individually or in the aggregate, no such lawsuits are expected to have a material effect on our financial position, results of operations or cash flows. We record accruals for contingencies when it is probable that a liability will be incurred and the amount of loss can be reasonably estimated.
Please reference the Contingencies section of Note 2 of our financial statements for additional disclosure.
ITEM 1A. RISK FACTORS
Our market risks are similar to those disclosed under the caption “Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K for the year ended March 31, 2024, and filed with the SEC on June 13, 2024. There have been no material changes to our Risk Factors disclosed in Annual Report on Form 10-K.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Issuances
The authorized capital of the Company is 200,000,000 shares of Common Stock with a par value of $0.001 per share and 10,000,000 shares of Preferred Stock with a $0.001 par value per share.
There were no unregistered sales of the Company’s equity securities during the quarter ended June 30, 2024.
Share Repurchases
On February 8, 2022, we announced that our Board of Directors authorized a share repurchase program for up to $30.0 million of our outstanding common stock. On March 28, 2023, we announced that our Board of Directors authorized the extension of our repurchase program until February 2024. On February 6, 2024, our Board of Directors authorized the extension of our repurchase program until February 2025.
Under the Share Repurchase Program, the Company is authorized to repurchase shares through open market purchases, privately-negotiated transactions, accelerated share repurchases or otherwise in accordance with applicable federal securities laws, including through Rule 10b5-1 trading plans and under Rule 10b-18 of the Securities Exchange Act of 1934, as amended. The repurchases have no time limit and may be suspended or discontinued completely at any time. The specific timing and amount of repurchases will vary based on available capital resources and other financial and operational performance, market conditions, securities law limitations, and other factors. The repurchases will be made using the Company’s cash resources.
The following table summarizes our share repurchases under our repurchase program for our first fiscal quarter of our 2025 fiscal year.
| Period | Total Number of Shares Purchased | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Maximum Number of Shares that may yet be Purchased Under the Plan or Programs(1) | ||||||||||||
| April 2024 | ||||||||||||||||
| May 2024 | ||||||||||||||||
| June 2024 | 579,463 | $ | 1.89 | 579,463 | ||||||||||||
| Total | 579,463 | $ | 1.89 | 579,463 | 15,629,800 | |||||||||||
| (1) | The maximum number of shares that may yet be repurchased included herein is determined based on the closing price of our Common Stock of $1.68 on June 28, 2024. This amount may change based on the price that our Common Stock trades at. |
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ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS
# Certain schedules and similar attachments have been omitted pursuant to Item 601(a)(5) of Regulation S-K. A copy of any omitted schedule or similar attachment will be furnished supplementally to the Securities and Exchange Commission upon request.
*Filed Herewith.
** Furnished Herewith.
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SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act of 1934, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| AMMO, INC. | ||
| By: | /s/ Jared R. Smith | |
| Dated: August 8, 2024 | Jared R. Smith, Chief Executive Officer | |
| By: | /s/ Robert D. Wiley | |
| Dated: August 8, 2024 | Robert D. Wiley, Chief Financial Officer | |
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